RETAIL MANAGEMENT & MERCHANDISE REPORT IN A CASE OF STARBUCKS COMPANY
Introduction
Starbucks company is an American multinational company located in Seattle, Washington, that began in 1971. The company started with a single store in Seattle market place by retailing while bean as well as ground coffee, spices, and tea. Currently, the company has been able to connect to millions of customers with different unique products, with more than 30,000 retail stores in more than 80 markets. The company’s mission is always inspiring and nurturing the human spirit with one person, one cup as well as one neighborhood every single time. Starbucks’s products include coffee, which has more than 30 blends, handcrafted beverages, fresh foods, and merchandise. Other products at groceries include ready to drink (RTD) drinks as well as tea and coffee. The company is always focused on offering the best customer experience across all retail stores (Moon et al., 2003).
Starbucks’ value proposition
The ‘live coffee’ mantra is a phrase that helped Starbucks build its brand. The company’s strategy was a reflection of keeping the culture in the national coffee alive. Value proposition refers to the extraordinary experience that every business promises to offer to their clients or customers (Moon et al., 2003). Starbucks, in this case, the value proposition strategy revolved around improving the customers’ experience while enjoying their coffee.
The Starbucks’ value of proposition was focused on a brand strategy that comprised of three components. The first brand strategy component was the real coffee itself. The company ensured that they offer the best quality of coffee across the globe and all their supply chains (Moon et al., 2003). The company assured them they work closely with coffee growers from different origins to buy green coffee beans. The company also had control of the custom-roasting process as well as distribution to all retail stores across the globe.
The second component of brand strategy was service or ‘customer intimacy.’ The main goal of the company was to uplift the experience of a customer each time they walked in through the door (Moon et al., 2003). They maintained the ‘customer intimacy’ by ensuring they recognize their loyal customers by their names as well as their favorite drinks.
The atmosphere was the third brand component. Despite customers coming for coffee at Starbucks, they continued to stay for the atmosphere. They had built an appealing environment that brought people together based on the sense of community and the human spirit—the above three components compelling value proposition to the company (Moon et al., 2003).
Starbucks’ channels of distribution
Generally, the company’s distribution channels can be distributed in two different ways. One is an intensive distribution channel, which includes the use of Starbucks’ outlets or cafes, online shopping platforms, and other retailers (Sholihah et al.,2016). The second is the exclusive channel of distribution, which comprises of food delivery applications. The distribution channels of the company are as discussed below;
Intensive distribution channels
Starbucks’ outlets or cafes
The company’s outlet is an essential market strategy since they are direct venues where customers access the products and services of the company. Their outlets are always designed in such a way they are appealing to the customer, and they feel at home (Sholihah et al.,2016). Customers also enjoy their experiences at the outlets by use of a mobile application where they view information concerning their products, alerts of new products, locations as well as various promotions.
Other retailers
Some selected products from the company, such as sealed and bottled soft drinks are sold via the intensive channel of distribution such as supermarkets, mini-markets, or other convenient stores. The prices of these products sold through the retailers are relatively lower compared to the drinks or beverages sold at Starbucks’ outlets or cafes (Sholihah et al.,2016). The distribution strategy makes the company more attractive to the retailers, which helps in building the brand through a broader market share. The retailers also help the company to reach out to their potential customers across the world.
Online shopping intermediaries
Starbucks has some of its merchandise sold via online platforms. Such products include instant coffee, coffee mugs, and bottled soft drinks. Online sales also contribute a higher revenue to the Starbucks company. Customers can purchase products through online platforms, and their products are delivered at their doorsteps (Sholihah et al.,2016).
Exclusive distribution channel
Food delivery applications
Starbucks also uses an exclusive distribution channel that helps in meeting the market demand despite the use of an intensive channel. This channel mostly helps in offering food delivery services for shopping of at least $30 with a walking distance not more than ten minutes from the store (Graves et al., 2006). The company is also in partnership with FoodPanda delivery company that helps Starbucks deliver products to customer’s premises at any time when purchases are made.
Competition models
The many different companies in the modern economy have resulted in high competitiveness in the market. Competitive models are used to differentiate these many industries and are categorized according to their level of competition in the economy (Rotemberg,1993). There are four main models, namely pure competitive model, monopolistic competition model, oligopoly, and pure monopoly. These models are discussed below;
The pure competitive market model
In this kind of model, there are a large number of suppliers supplying the same product into the market. The forces of demand in the market determine the market price of a product; hence no supplier has control over the price of the products. The suppliers are, therefore, known as price takers (Rotemberg,1993). There are also low barriers to entry into the market hence the many suppliers in the market. Agricultural products are the best examples of pure competitive products.
Monopolistic competition model
This model is almost similar to pure competition since there are many firms in the market and low barriers of entry into the market. However, the suppliers try to differentiate their products from other suppliers to achieve a competitive price advantage. Some of the products in this category include beauty aids and health products. The suppliers hence differentiate their products to justify their higher prices in the market (Rotemberg,1993). To convince the consumers of the superiority of their products, they use methods of promotion such as advertisements. For instance, producers of toothpaste convince their consumers using promising qualities like their teeth will become whiter, curb tooth cavities, or make their teeth stronger.
Oligopolistic model
This is a type of model where the market has few suppliers. The outputs and prices in an oligopoly are also determined by strategic decisions despite influences in market supply and demand. There are higher numbers of barriers to entry of suppliers into the market. The oligopolistic firms have control over output or prices of products in the market. However, before a firm can make a decision, it has to consider the choices of other firms so as to maintain its market share (Rotemberg,1993). Auto manufacturers are examples of oligopolistic firms due to the high fixed costs of automobiles.
Pure monopoly model
This type of competitive model has a high power of pricing products in the market. In this market, there is only one supplier who controls the output and price of the product. There are high barriers to entry into the market by other firms; hence pure monopoly has little or no competition. Other reasons for little competition are due to the initial costs of starting such firms or the significant existing influence of the monopoly firm (Rotemberg,1993).
Competitive model for Starbucks company
The most suitable competitive model in the Starbucks company is the monopolistic competition model. In our case, Starbucks had many competitors in the market who tried to differentiate their products and services to outdo the company. For example, some firms sought to provide the freshest coffee in the market while others tried to make their environment look appealing. However, Starbucks had strategies that helped them gain a competitive advantage. They mainly focused on the expansion of retail outlets across the world and also focused on product innovation by offering the sale of different products regularly.
Starbucks premium pricing strategy
Starbucks uses a pricing strategy that is known as a premium based approach, which differs from one target market to another. Premium pricing involves setting the price relatively higher than other like products in the market. This approach helps in the maximization of profits in the company. Starbucks simply sets its price on the idea of moderate cost along with the high value. People will be willing to pay more money as long as there is a good deal; thus, the high prices are not an issue to them (Hinteruber et al.,2018). The company also increases prices at margins that the customer cannot notice. The main goal of this increase in prices in margins is to lead the customers toward the most profitable prices slowly. Below are some examples of strategies that enable them to achieve this objective.
Starbucks’ strong brand image
The strong brand image of Starbucks revolves around luxury hence the premium prices. The strong brand has been achieved through the placement of stores at strategic positions, as well as their consistency in the services they offer as well as highly specialized menus. The company’s stores spend less time in the advertisement as compared to other brands (Hinteruber et al.,2018). The company benefits from higher returns from the store prices. For instance, a luxurious brand may sell its imported coffee at $7, while Starbucks may maintain its sale at $5 for its standard Grande coffee. Despite the low price, the customers will remain to be loyal since they know what to get from the price.
Promotional strategies of Starbucks
Moreover, the company’s promotional strategies on special holidays and events help create awareness and more sales. The company invests heavily in seasonal and holiday promotions. The management has quality machines and capabilities that help in maintaining seasonal raw materials without disruptions in the supply chains. The seasonal promotions help the company in maintaining the infrastructure and the existing menu (Hinteruber et al.,2018). The company also uses this strategy to advertise its upcoming products on seasonal occasions before they launch the product.
Starbucks’ menu
Starbucks company has a specialized and focused menu. The items on the menu are equally crucial to the pricing strategy. The strategy helps the company achieve an optimal margin. The company also has excellent options to be selected without overwhelming customers. For example, the highest fraction of their foods are always premade and always ready to heat; this offers an excellent customer experience by avoiding delays hence saving time (Hinteruber et al.,2018).
Starbuck’s location strategy
Across the world, Starbucks has its stores at the most premium and strategic positions. Their most target is premium, high visible locations with right settings, places with more traffic, office buildings, downtown, universities as well as selected rural areas across the globe. The main reason for placing the stores at such strategic positions, in my view, is to eliminate other industries from entering into the market hence reducing competition in the area (Kim,2013). Despite the shops being closer together, the firm has never lost value nor increased competition. Another reason for strategically placing the stores at such positions is to keep a ‘closer’ feeling where people familiarize themselves with each other. The employees can identify their loyal customers by names, faces, or even their favorite orders or drinks. This penetration has earned the company core competence and advantages for it to penetrate different market shares and attract prospective customers.
Starbucks’ location strategy mainly focuses on urban areas, where there are middle class and higher-class populations in the regions that are densely populated. They also ensure they occupy a greater geographical area so as to grab a significant market share and drive away from the competitors. The stores are so appealing with a cool atmosphere that makes customers last longer in the stores after enjoying their coffee (Kim, 2013). Their environment is also friendly to their customers, even in the way the employees treat them. The company offers free WIFI, excellent services, and appealing music. The warm atmosphere always feels like a ‘community based’ environment when people meet and pass the time at their pleasure.
References
Graves, P., & Chakiris, P. (2006). U.S. Patent Application No. 11/062,249.
Hinterhuber, A., & Liozu, S. M. (2018). Thoughts: premium pricing in B2C and B2B. Journal of Revenue and Pricing Management, 17(4), 301-305.
Kim, S. W. (2013). Selecting the location of service facilities: Siting strategy of Starbucks in Korea. The Journal of Small Business Innovation, 16(1), 61-76.
Moon, Y., & Quelch, J. A. (2003). Starbucks: delivering customer service. Harvard Business School.
Rotemberg, J. J., & Woodford, M. (1993). Dynamic general equilibrium models with imperfectly competitive product markets (No. w4502). National Bureau of Economic Research.
Sholihah, P. I., Ali, M., Ahmed, K., & Prabandari, S. P. (2016). The Strategy of Starbucks and its Effectiveness on its Operations in China, a SWOT Analysis. Asian Journal of Business and Management (ISSN: 2321–2802) Volume.